ii view: is Berkeley Group’s investment now paying off?

Upping profit estimates with an ongoing focus on shareholder returns. We assess prospects.

First-half results to 31 October

• Revenue up 36.3% to £1.22 billion
• Pre-tax profit up 26% to £291 million
• Net cash down 25% to £846 million
• Total shareholder returns of £486 million, up from £171 million

Guidance:

• Raised its current financial year earnings guidance by 5%
• Pre-tax profits to increase by 5% per annum for the next three financial years

Chief executive Rob Perrins said:

"This is a strong set of results, including enhanced returns for our shareholders. High standards of design and place-making continue to differentiate our homes and neighbourhoods, excite customers and deliver a range of positive outcomes for our stakeholders.

"The performance reflects Berkeley's conviction and investment in its strategy over the last 18 months. Over this time, we have continued to deliver in line with our uniquely long-term operating model, progressing construction across our portfolio of 64 live projects. These include 30 long-term, highly complex regeneration sites, of which 25 are now in delivery.

"The significant majority of our sites under construction (83%) are located on brownfield land and we warmly welcome the Government's renewed focus on supporting brownfield regeneration through its anticipated planning reforms. To be successful, these will need to address the regulatory barriers to brownfield regeneration."

ii round-up:

Housebuilder Berkeley (LSE:BKG) was established in 1976. 

Today its brands include Berkeley Homes, St Edward, St George, St James, St Joseph and St William. 

It operates principally in London, Birmingham and the South of England.

For a round-up of these latest results, please click here.

ii view:

Berkeley's sales are divided evenly between owner-occupiers and investors, with many investors coming from overseas. As such, the pandemic hit Berkeley Group in a way not seen at other housebuilders such as Persimmon (LSE:PSN) or Barratt Developments (LSE:BDEV). Early stringent travel restrictions hindered its overseas buyers from visiting and viewing properties. 

For share investors, pandemic uncertainties and consideration for its overseas buyers cannot yet be dismissed. Supply chain challenges and elevated build costs also need remembering, as does economic uncertainty and the Bank of England's recent interest rate hike.

That said, continued group investment is expected to see housing completion volumes increase by 50% come 2024/2025 compared to 2018/2019. Shareholder returns via both dividends and share buybacks also remain a core focus. Analysts currently estimate a future dividend yield of around 5%. In all, and while some caution looks sensible, a multi-year increase in profit guidance arguably marks an upturn in management confidence, a potential long-term favourable indicator. 

Positives: 

• An industry revered track record
• A commitment to shareholder returns

Negatives:

Suffering rising build costs

Uncertain pandemic and economic outlook

The average rating of stock market analysts:

Strong hold